There are many types of selling away schemes, and these schemes can result in significant — and sometimes complete —investor losses. However, with the help of an investment attorney, investor losses can be recovered through securities arbitration.
Selling away occurs when a broker or investment adviser sells an investment to a client that is not included in the client’s account or in the investment products that are offered by the firm. These private securities often include investments in private placements, private non-traded REITs, privately-held companies, limited partnerships, real estate and promissory notes. While all of these private securities can be real investments, they are sometimes used as a means for defrauding clients.
If a broker wants to complete a private securities transaction, he or she must provide the firm with written notice that details the transaction, and the transaction must be approved by the firm. If the transaction is not approved by the firm, the broker cannot participate in any way with the transaction. If the broker does not comply with the firm’s order, or does not attempt to gain approval, “selling away” has occurred.
Selling away cases often involve both the actions of the broker and the supervisory practices of the firm. Often, selling away could have been prevented if the firm’s supervisors had paid attention to certain red flags that should have alerted them to the broker misconduct.
Investors are protected against selling away by NASD Rule 3040, Private Securities Transactions of an Associated Person, which states that if a private securities transaction is not in accordance with the requirements’ rule, financial advisors cannot partake in the transaction in any way. Factors that are taken into account in a FINRA ruling include number of customers affected, dollar volume of sales, duration of time selling away occurred, relationship of broker to the transaction, and the broker’s attempt — or lack thereof — to receive approval from the firm.
If you believe you have been the victim of selling away, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.